I don't understand exactly what a trader is/does. I always thought they were the ones who actually tell a broker to buy/sell an equity, bond, derivative, etc. However, I was under the impression that they are told to buy/sell by financial analysts, portfolio managers, hedge fund managers, MDs, partners, etc. But, it seems to me that can't be right, since many of the most successful investors seem to come from a trading background (Soros, Cohen, etc) so they must be making more investment decisions than I realize. So, what exactly does a trader do? What makes them different from financial analysts, portfolio managers, and others who make key investment decisions?
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they execute. the rest that are somehow connected are either support or general policy setters. in executing the trades they use whatever tool and skill, strategy and gut they find works.
Ok, so they execute. So are they told what to do by portfolio managers and others? For example, does the PM say "we want to go long on X, we really think it's worth $Y, even though it's currently trading at $Y-Z" and then the trader uses their judgment to try and buy it at the best price? Or am I still confused?
The Vault guide has a great intro to what a trader does. Basically when you start you will be filling client's orders. In order to generate profit for your bank you must try and buy lower or sell higher than what the client wants. The client will get whatever he wanted at the price he sent in, and you pocket the (small) difference. As you move up, you may be given the opportunity to make trades on your own behalf with the bank's money, though this practice has been greatly scaled back recently.
Traders are the apex predators of Wall Street. If you have to ask, you probably aren't qualified.
Told what to buy or sell by a financial analyst? Traders wipe their asses with analysts' reports - and that's after they've thrown a shot into the analyst's girlfriend.
Everyone secretly wants to be a trader, but realizes they'd probably flame out in the first five minutes.
Actually I just have one: roid rage
Basically, at least at large broker-dealers, traders act in an agency or proprietary capacity. Meaning they either make trades for clients (institutions, hedges and the like) or for the firm they work at. Most agency trading work revolves around market making (particularly important in the fixed income market, and other OTC markets). Client asks to sell XYZ bond...you stand ready as buyer...then hope to offload it to the next sucker and profit from a slim spread. You get more prop trading responsibilities as you advance in your career.
Obviously on the buy-side the work is entirely prop trading and fin analysts are pretty important...any ER analyst worth his salt has his phone ringing off the hook with calls from hedgies/institutions who really don't have the time or inclination to go through that debt of analysis.
Also Edmundo is kinda right...if you don't have the same fever, I'd probably look for something else.
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Traders manage risk that is all they do, by managing I mean optimizing losses and increasing gains.
Just like the IBD does Mergers, LBOs, raises cash through debt issue, IPOs, Line of Credits etc...
The traders manage that risk. For an LBO the Fixed Income guys will make a plan to sell out all the bonds over some time period to raise the cash needed for the PE firm on the day the deal goes through. But to manage those positions the fixed income guys need the money market dudes to raise Cash in O/N and 1week and 1month markets to make sure to hedge the risk of all bonds on the balance sheet. Then you may have FX risk maybe a US PE firm is buying a UK firm etc, well then the FX dudes need to figure out how to deal with that risk. If everyone manages risk the right way then the PE deal from the bank's view should come out to what the bankers had model'd ages ago before.
You can make a similar story in other products. Then you have the sales and clinet aspect.
Many more examples can be found.
An analyst job is not to trade, an analyst job is to analyze and make sure the relevant information is passed along. So while a real good ER analyst can guess what EPS will be or what the value of a firm is intrinistically. He/she does not know when someone in the market will actually trade at that value thats the job of a trader he/she is in the market everyday seeing the price movement.
It's funny in Fixed Income you think the Economist would have the best say on where rates or so are going, but alot of the time economist will call the top traders and ask whats happening because the trader is the one who is seeing where futrures are, and what people are guessing out there. Then again the trader will call the economist before jobs/gdp hits and ask how this could affect the market. Etc its a 2 way street.
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